b'the same amount as the liability. We record increases in the discounted abandonment liability resultingfrom the passage of time in depletion and depreciation in the consolidated statement of operations.Estimating the future restoration and removal costs requires management to make estimates andjudgments because most of the removal obligations are many years in the future and contracts andregulations often have vague descriptions of what constitutes removal. Additionally, asset removaltechnologies and costs are constantly changing, as are regulatory, political, environmental, safety andpublic relations considerations.Inherent in the present value calculation are numerous assumptions and judgments including theultimate settlement amounts, inflation factors, credit adjusted discount rates, timing of settlement andchanges in the legal, regulatory, environmental and political environments. To the extent futurerevisions to these assumptions impact the present value of the existing asset retirement obligations, acorresponding adjustment is made to the oil and gas property balance.Impairment of Long-Lived Assets. We review our long-lived assets for impairment when changes incircumstances indicate that the carrying amount of an asset may not be recoverable. ASC 360Property, Plant and Equipment requires an impairment loss to be recognized if the carrying amount ofa long-lived asset is not recoverable and exceeds its fair value. The carrying amount of a long-livedasset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result fromthe use and eventual disposition of the asset. That assessment shall be based on the carrying amount ofthe asset at the date it is tested for recoverability, whether in use or under development. Animpairment loss shall be measured as the amount by which the carrying amount of a long-lived assetexceeds its fair value. Assets to be disposed of and assets not expected to provide any future servicepotential to us are recorded at the lower of carrying amount or fair value less cost to sell.We believe the assumptions used in our undiscounted cash flow analysis to test for impairment areappropriate and result in a reasonable estimate of future cash flows. The undiscounted cash flows fromthe analysis exceeded the carrying amount of our long-lived assets. The most significant assumptionsare the pricing and production estimates used in undiscounted cash flow analysis. Where unprovedreserves exist, an appropriately risk-adjusted amount of these reserves may be included in theevaluation. In order to evaluate the sensitivity of the assumptions, we assumed a hypothetical reductionin our production profile and lower pricing during the early years which still showed no impairment. Ifwe experience further declines in oil pricing, increases in our estimated future expenditures or adecrease in our estimated production profile our long-lived assets could be at risk for impairment.Consolidations / Equity Method of Accounting. The Consolidated Financial Statements include theaccounts of our wholly-owned subsidiaries. They also include Kosmos share of the undivided interest incertain assets, liabilities, revenues and expenses. Investments in corporate joint ventures, which weexercise significant influence over, are accounted for using the equity method of accounting.Equity method investments are integral to our operations. The other parties, who also have anequity interest in these companies, are independent third parties. Kosmos does not invest in thesecompanies in order to remove liabilities from its balance sheet.New Accounting PronouncementsSee Item 8. Financial Statements and Supplementary DataNote 2Accounting Policies for adiscussion of recent accounting pronouncements.Item 7A. Qualitative and Quantitative Disclosures About Market RiskThe primary objective of the following information is to provide forward-looking quantitative andqualitative information about our potential exposure to market risks. The term market risks as itrelates to our currently anticipated transactions refers to the risk of loss arising from changes in99'